Bounce Of Cheque Issued For Insurance Premium Is Breach Of Promise, Insurance Company Not Bound To Indemnify Owner Of Offending Vehicle

In FIRST APPEAL NO.1839 OF 2018, SBI Insurance Company vs Madhubala & Others, a first appeal filed by SBI Insurance Company against an order of the Motor Accidents Claims Tribunal wherein the appellants were directed to pay a compensation of Rs. 11,93,000 to the family of a carpenter who died in an accident with a bus that was being driven on the wrong side.

The owner and driver of the offending bus did not resist the claim petition. The insurer challenged the award only on the ground that because the policies of insurance issued by the insurer of the offending

vehicle were cancelled by the Insurance Company after the occurrence of the incident on account of bouncing of the cheques issued towards premium, the Insurance Company is not liable to indemnify the owner of the offending vehicle. Therefore, the Insurance Company has right to recover the compensation from owner of offending vehicle, paid to the claimants, towards satisfaction of the award passed by the Tribunal.

The owner of the vehicle resisted the contention of the insurer on the grounds that on the date of accident  neither the cheque of premium fees issued by the owner of vehicle was dishonoured, nor the policy of insurance was cancelled by the insurer of the offending bus. He submitted that after occurrence of the accident for the first time, the Insurance Company issued letter to the owner on and thereby cancelled the policy of insurance, therefore as the policy of insurance was subsisting on the date of accident the Insurance Company is bound to indemnify the owner of the offending vehicle as well as the third party. Therefore, the insurer of the offending vehicle has no right to recover the compensation amount from the owner of the offending vehicle.

The Bombay High Court held that the contract of insurance in between owner of the offending vehicle and insurer, includes reciprocal promises by both the parties. By issuing cheque of amount of premium, the owner of the offending vehicle promises to pay consideration for contract of indemnity and in lieu of consideration of premium amount, the insurer promises to indemnify the owner of the offending vehicle in case of liability of owner to pay compensation for accident. Thus, when on account of bouncing of cheque issued towards premium of policy of insurance, the owner of the offending vehicle committed breach of his promise, the insurer of the offending vehicle is not bound to indemnify the owner of the offending vehicle. In the circumstances, as insurer was liable to pay compensation to the third party, it has right to recover the paid amount from owner of the offending vehicle.